Inflation continues to march higher and this could cause demand for high-yielding shares to rise. Already, it reached 1.6% in December and is forecast to hit 3% or even 4% during the course of the year. At the moment, dividend shares are relatively popular due in part to low savings rates. During 2017 they could become even more so as the real-terms return on cash becomes increasingly negative. As such, buying these two dividend shares now before they become increasingly in vogue could be a sound move.
A solid income play
When it comes to identifying the most popular income stocks, Vodafone (LSE: VOD) is likely to be towards the top of most people’s lists. It’s considered by many investors to be a quasi-utility, such is the dependable nature of its business. However, this is a far cry from Vodafone’s image when it first started business. Back then, it was a growth play which was focused on dominating the global mobile market. Once it had achieved international growth however, it began to reward its investors through higher dividends.
Today it seems to be moving back towards a stock focused on growth, rather than simply being a solid dividend payer. Evidence of this can be seen in its major investment in Europe, both in terms of acquisitions and infrastructure. It’s also diversifying its product range and could gain from cross-selling opportunities. This new strategy is set to deliver growth in earnings of 20% next year and 28% the year after, which could boost Vodafone’s yield from the current level of 6.4%.
Of course, just because Vodafone is set to record higher growth doesn’t mean it’s now higher risk. It remains a well-diversified business with a sound balance sheet and strong cash flow. Therefore, it looks set to become even more popular among investors in 2017.
Rapid dividend growth
The growth rate of Standard Life‘s (LSE: SL) dividend in the last four years has been impressive. It has risen by 7.7% per annum, which is clearly ahead of inflation. Even if inflation rises to around 3% or 4% this year, Standard Life’s earnings growth forecast of 9% this year and 8% next mean its shareholder payouts should offer real-terms growth for the company’s investors. This could cause the company’s shares to become increasingly popular, especially since it has a payout ratio of over 1.3.
As one of the highest-yielding shares in the FTSE 100, Standard Life appears to be an excellent income choice. Its yield of 6.1% is around 2.5% higher than that of the wider index. It trades on a price-to-earnings growth (PEG) ratio of just 1.4, which indicates it also offers strong capital gain prospects. And with a sound strategy and diverse business model, it looks set to become increasingly popular among yield-hungry investors as the year goes on.
